What Are Stablecoins?

What are stablecoins?

With the emergence of cryptocurrencies, there arose the need for a currency with less price volatility, which would be more reliable for business inquiries.?

There came the stablecoins - designed for the global economy of the future, these currencies are like the American Dollar or Global Gold price - only affected by economic phenomena like inflation.? Their price does not depend on demand or popularity due to regulation techniques. They are stable.??

There are two main reasons behind stablecoin creation.? The first is, of course, a single global cryptocurrency plan, allowing the whole world to exchange, transact, and operate under one financial unit.? And while the plan is in its Stone Age, it’s not hard to come up with predictions. The next reason is a so-believed marketing strategy that certain blockchain companies employ - simply to gain more users.?

Tether - USD?

One of the first stablecoins is believed to be the Tether (USDT), launched as early as 2014.? The concept behind this high-liquidity currency is the 1:1 ratio with the US dollar (1 USDT is equivalent to 1 USD).? Hence, if the dollar price shifts, the USDT will jump to correspond.? This allows users to use a blockchain currency directly connected to the real-world global currency level.??

The main benefit of owning such funds is the “no middlemen” transaction model that blockchain offers.? People do not lose money on additional payments and save time due to a lack of confirmations.?

The journey has been troublesome for Tether, though.? After several lawsuits, Tether’s lawyers publicly admitted they only had 74% of fiat currency-backed tokens.? Despite all that, reliable sources claim Tether has a circulating supply of 69.36B USD.

Some other popular stablecoins include USDC, BUSD, and DAI

BUSD is the Binance USD, a currency born as a result of the Binance and Paxos collaboration. Paxos is the USD custodian of BUSD.?

As in the case of Tether, BUSD has a steady price, fully interchangeable with USD.?

DAI, the next stablecoin, takes somewhat more time to understand. Built by the MarketDAO Ethereum-based team, the currency is not controlled by any centralized authority.? The core principle of DAI is that it is not backed by any fiat currency.? Instead, a DAI coin is created whenever a collateralized debt position is opened, locking into a smart contract.??

As the complexity and immense growth of the crypto-realm suggest, a new global financial model is just around the corner.? To take the adaptation process easy, there are the stablecoins - securing our transactions and saving us time, while not giving us life plots in terms of price shifts every day.? While they are in their early stages, the stablecoins are amidst some uncertainties, which predictably will vanish over time.??